Tuesday, December 9, 2014

Lower Food Prices From Lower Oil Prices

Because energy accounts for as much as half the cost to produce food and metals, all sorts of commodities will keep dropping, according to Societe Generale SA and Citigroup Inc. With inventories ample and slowing economies eroding demand, cheaper oil lowers the price floor for mining companies and farmers to remain profitable. Corn may drop another 3 percent, cotton 6.5 percent and gold as much as 5 percent, SocGen estimates.

Costs are falling as surpluses emerge in copper and sugar and as the economy slows in China, the top consumer of energy, metals, pork and soybeans. The Bloomberg Commodity Index of 22 items is heading for a fourth straight annual drop, the longest slump since its inception in 1991. Brent crude, gasoline and heating oil are the biggest losers as an increase in U.S. drilling led to a price war with producers in OPEC. [Emphasis added.]